The business and economic landscape of Kuwait just changed. With the ratification of the first law of 2024: Law Regarding the Amendment of Article 24 of the Commercial Law and Article 31 of the Public Tenders Law (1/2024) (the “Foreign Company Amendments Law”) on 21 January 2024, foreign companies now have direct, unhindered access to the Kuwaiti market, and are able to establish branches in Kuwait without the need for a local commercial agent.
The History
Before the Foreign Company Amendments Law, foreign companies had limited options to engage in business in Kuwait, and were able to do so only by having a majority Kuwaiti partner or have a Kuwaiti commercial agent. These requirements were enshrined in Articles 23 and 24 of the Commercial Law (68/1980) (“Commercial Law”).[1]
These requirements were gradually eased over time.
In 2001, the Regulation of Direct Investment of Foreign Capital Law (8/2001) (“First FDI Law”) was passed to incentivize foreign investment in Kuwait by permitting foreign investors to apply for an investment license under the law with tax and customs duty reliefs. The First FDI Law was succeeded by a more comprehensive FDI law in 2013, the Kuwait Direct Investment Promotion Law (116/2013) (“KDIPA Law”), which established an independent authority tasked with incentivizing foreign companies to enter the Kuwaiti market by providing similar relief as the First FDI Law and providing foreign companies with assistance to navigate the bureaucratic environment of Kuwait.
Further, in 2003, it was clarified that citizens of member states of the Gulf Co-operation Council (“GCC”) would be granted the same treatment as local Kuwaitis, and therefore GCC citizens – natural persons and companies – were able to practice commerce in Kuwait as if they were Kuwaitis.[2]
The New Amendment
Significantly now, the recently enacted Foreign Company Amendments Law amended Article 24 of the Commercial Law. Previously, Article 24 stated:
“It is not permissible for a foreign company to establish a branch in Kuwait, and it is not permissible for the [foreign company] to engage in commercial activities except via a Kuwaiti agent.”[3]
With the enactment of the Foreign Company Amendments Law, Article 24 now states:
“As an exception to the provisions of Article 23(1),[4] the foreign company may establish a branch in Kuwait and engage in its activities without the need for a local agent.”[5]
Hence, the Foreign Company Amendments Law now permits foreign companies to establish branches in Kuwait directly and without the need for a Kuwaiti agent. The branch is authorized to engage in the activities of the foreign company in Kuwait.
It is peculiar that the Foreign Company Amendments Law does not allow foreign companies to unilaterally incorporate companies in Kuwait given that the minimum 51% Kuwaiti shareholding requirement of Article 23 of the Commercial Law still persists.[6] It would not surprise us, however, if, in the future, this requirement is also abolished.
What Does This Mean?
As a next step, the Ministry of Commerce and Industry (“MOCI”) will issue regulations – by way of ministerial resolutions – that regulate the establishment of foreign company branches in Kuwait.
As an example, following the ratification of the GCC Economic Treaty, MOCI issued the Resolution Permitting GCC Companies to Open Branches in Kuwait (237/2011) (“GCC Branches Resolution”). The GCC Branches Resolution’s only pertinent requirement was that GCC companies must have been registered for three years in their state of citizenship before being able to open branches in Kuwait.
Given the unrestricted language in the Foreign Company Amendments Law, it is unclear to what extent MOCI can or will impose stricter requirements on foreign companies seeking to establish branches in Kuwait.
What Are Corporate Branches Under Kuwaiti Law?
Branches are not clearly regulated in Kuwait. Except for brief references to branches in the Civil Code (67/1980), Commercial Law and the KDIPA Law – and a few other sector-specific laws[7] –, there are no specific regulations defining the legal nature of corporate branches in Kuwait. The Companies Law (1/2016) provides no guidance on the establishment of branches.
Ordinarily, Kuwaiti companies establish branches pursuant to the Commercial Businesses Licenses Law (111/2013) (“Commercial Licenses Law”). The Commercial Licenses Law regulates the way by which a person applies for, and obtains, a commercial license to engage in commercial activities.[8] Unless otherwise allowed by other specific laws, decrees or resolutions, it is not permissible for any person, intending to engage in commerce, to open or own any establishment or office without first obtaining a license from MOCI.[9] Article 3 of the Commercial Licenses Law states that if an applicant for a commercial license is a foreign company or a branch of a foreign company, then the applicant must comply with the conditions of the specific laws that govern the activities of such foreign company or branch.[10]
Naturally, therefore, branches are mere extensions of the legal personality of the parent company.
Although corporate branches could be served with process of legal proceedings in Kuwait,[11] it remains to be seen whether MOCI can or will impose capital or management requirements, guarantees or other minimum contributions to facilitate the enforcement of adverse criminal or civil judgments against such corporate branches, and to generally safeguard the interests of those in Kuwait who transact with such branches. It is also unclear how manpower files will be regulated by the Public Authority of Manpower (“PAM”) with respect to foreign branches, especially given the stringent requirements already in play.[12] Even for Kuwaiti companies that have foreign general managers or chairmen, PAM mandates that the authorized signatory for the employment file must be Kuwaiti.[13]
Next Steps
The consequences of this amendment are significant. Foreign companies now have the same rights as Kuwaiti or GCC companies when establishing branches and, given the unrestricted language of the Foreign Company Amendments Law, MOCI’s regulating resolutions cannot discriminate between foreign companies and Kuwaiti or GCC companies. The market is just beginning to adjust to this new legal reality, but it is evidently clear that the door to the Kuwaiti market is much wider today than it ever was.
Public Tenders Law
In addition to the foreign companies’ liberty to establish branches in Kuwait, the Foreign Company Amendments Law also amends Article 31 of the Public Tenders Law (49/2016) (“Public Tenders Law”)[14] making it a right for foreign persons – natural or legal – to apply for any public tenders. The new wording of Article 31 of the Public Tenders Law is:
“General Condition of the Contractor:
Taking into consideration the [Companies Law] and [KDIPA Law], referenced, and the provisions of the related international conventions, it is a condition for a submitter of a bid to a public or limited tender, or practice, or direct contract to be:
First: a Kuwaiti – individual or company – registered in the Commercial Registry.
Second: Registered in the importers’ and contractors’ registry, or pursuant to the nature of the tender, practice or direct contract.
And if the submitter of the bid is a foreigner, then the submitter of the bid shall not be subject to the provisions of Clause First of this Article and the provisions of Article 23 of the [Commercial Law].”
This amendment removes any discretionary leeway that public institutions once enjoyed to restrict offerings to local bidders only. Now, local and foreign persons may bid for all offerings, subject to qualification requirements that bidders must adhere to with the Central Agency for Public Tenders.
[1] Articles 23 and 24 supplanted almost identical provisions in Articles 26 and 27 of the preceding Commerce Law (2/1961).
[2] Article 3, Ratification of the GCC Unified Economic Treaty (5/2003) (“GCC Economic Treaty”).
[3] Article 24, Commercial Law (pre-amendment).
[4] Article 23(1), Commercial Law (“It is not permissible for the non-Kuwaiti to practice commerce in Kuwait unless he has one or more Kuwaiti partners, and it is a condition that the capital of Kuwaitis in the joint [business] does not fall below 51% of the total capital of the [business].”).
[5] Article 1, Foreign Company Amendments Law.
[6] Foreigners who wish to incorporate wholly-owned Kuwaiti companies can only do so pursuant to the KDIPA Law.
[7] Currency, Central Bank of Kuwait and Banking Profession Law (32/1968) (“CBK Law”), Insurance Regulation Law (125/2019) (“Insurance Law”).
[8] Article 3, Commercial Licenses Law.
[9] Article 1, Commercial Licenses Law.
[10] Article 3(3), Commercial Licenses Law. This provision covered, for example, applicants pursuant to the CBK Law, Insurance Law or KDIPA Law.
[11] Article 14, Civil and Commercial Pleadings Law (38/1980) (“Pleadings Law”) (“And the domicile of the legal person is the place within which its center of business is located, and with that, it is permissible to consider the place within which one of its branches is located as its domicile with respect to the activities of that branch, and the domicile of the legal person whose main center of business is located [outside Kuwait] and is active in Kuwait is the place within which the local business is located with respect to those activities.”).
[12] Article 4(4), Public Authority of Manpower Work Permit Rules of Procedures Resolution (156/2022) (An employer’s authorized signatory at the Public Authority of Manpower must be either Kuwaiti or a GCC-national, except where the employer is incorporated via KDIPA or is an international institution).
[13] Id.
[14] Article 31 of the Public Tenders Law (pre-amendment):
“General Condition of the Contractor:
Taking into consideration the [Companies Law] and KDIPA Law, referenced, and the provisions of the related international conventions, it is condition for a submitter of a bid to a public or limited tender … to be:
First: a Kuwaiti – individual or company – registered in the Commercial Registry.
Second: Registered in the importers’ and contractors’ registry, or pursuant to the nature of the tender, practice or direct contract.
And it is permissible for the submitter of a bid to be a foreigner, and in that case, the submitter of the bid shall not be subject to the provisions of Article 23(1) and the provisions of Article 24 of the [Commercial Law].
And it is permissible for the offering to be restricted to national companies for typical works, or for those works for which adequate specializations are available in the local market.
And it is also permissible for the offering to be restricted to foreign companies if the pertinent entity requests so, where there is a need to perform works that require technical expertise not present in adequate numbers locally and in a way that makes good competition difficult.”
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